Building progress

2017 brought positive news for the new-home market, but there’s still room to improve

Will 2018 bring good news or bad news for Calgary’s new-home market? As with many aspects of the real estate market, it depends on your focus.

“Looking at Canada Mortgage and Housing Corp. data, we saw an improvement in starts in both the single- and multi-family sectors in 2017,” said CREB® chief economist Ann-Marie Lurie.

For those who recall the starts numbers in 2016 being some of the lowest since the financial crisis in 2009, that improvement may be a sight for sore eyes, but there’s still a long way to go.

“Most growth in starts lately has been on the multi-family side,” said Lurie. “That’s a big change from the past, as it’s only since 2014 that multi-family starts have surpassed their single-family counterparts. It’s an indication that builders are moving to higher-density new starts.”

On the other hand, there hasn’t been the same jump in detached starts versus multi-family, with just over 4,000 of the former in 2017 compared to 7,000 of the latter.

“Most growth in starts lately has been on the multi-family side. That’s a big change from the past, as it’s only since 2014 that multi-family starts have surpassed their single-family counterparts. It’s an indication that builders are moving to higher-density new starts.” – Ann-Marie Lurie, CREB® chief economist

“We’ve had more multi-family product coming on the market,” said Lurie. “Expect to see a bit of a market shift in 2018, where multi-family starts will ease somewhat and detached starts will improve, though less so than what we’ve seen historically.”

In terms of housing under construction, most is multi-family product at the moment, which saw a rise in inventories this past year.

“There hasn’t been enough household formation growth and migration to absorb all the new start activity, so that’s creating the increase in inventories,” said Lurie.

For 2018, the Conference Board of Canada forecasts 4,678 single-family starts, an improvement over the 4,423 starts in 2017. Multi-family starts are expected to drop from 7,111 to 6,798.

As for the impact of rising oil prices and interest rates, it’s not clear cut, but is worth keeping an eye on.

“Migration levels aren’t expected to increase much, but at least they aren’t negative, as we saw during the recession,” said Lurie. “Unfortunately, when we don’t have much job growth in the higher-paid energy sector, it’s hard to attract more migration to the area, so that weighs on our market, just as higher lending rates weigh on housing demand.”

What the future holds will depend on where new-home builders choose to tread.

“As higher interest rates impact what people can afford, especially in the higher price ranges, if we don’t see a lot of job growth, builders may re-evaluate the price points for the products they’re putting out,” said Lurie.